Economic Policy and the Budget POLS 21: The American Political System The government deficit is the difference between the amount of money the government.

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Presentation on theme: "Economic Policy and the Budget POLS 21: The American Political System The government deficit is the difference between the amount of money the government."— Presentation transcript:

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Economic Policy and the Budget POLS 21: The American Political System The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect. —Sam Ewing

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Where the Money Comes From… Individual income taxes Individual income taxes Payroll taxes Payroll taxes Corporate income taxes Corporate income taxes The money that the federal government uses to pay its bills—its revenues—comes mostly from taxes: $106.1 billion $904 billion $222 billion

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february /sequester prelude-to-the-return-of-the-barter-system Sequester 2013 – Prelude to the Return of the Barter System In the face of the budget sequester and subsequent economic apocalypse, Samantha Bee checks items off her bucket list.

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Where the Money Comes From… The money that the federal government uses to pay its bills—its revenues—comes mostly from taxes:

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Where the Money Comes From… Individual income taxes raised an estimated $967 billion in 2005, equal to about 8 percent of Gross Domestic Product (GDP)—about the same percent as in each of the last 40 years. Social insurance payroll taxes—the fastest growing category of Federal revenues—include Social Security taxes, Medicare taxes, unemployment insurance taxes, and Federal employee retirement payments. This category has grown from two percent of GDP in 1955 to seven percent in Corporate income taxes, which will raise an estimated $220 billion in 2005, have shrunk steadily as a percent of GDP, from about 5 percent in 1955 to less than 2 percent today. The money that the federal government uses to pay its bills—its revenues—comes mostly from taxes:

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The Federal Debt: Common Questions What is the difference between the deficit and the federal debt? What is the current debt? The outstanding public debt as of April 24, 2014 $ 17,533,319,544, Since the estimated population of the United States is 318,087,524. Each citizen’s share of the debt amounts to $55,121.10!

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The Federal Debt: Common Questions What is the difference between the deficit and the federal debt? What is the current debt? Why has the size of the debt grown? Aren’t budget deficits bad? But isn’t accumulating long term debt a bad thing? But won’t this bankrupt the nation? Isn’t the government in danger of being unable to pay its creditors? Still, even if we never pay off the debt, won’t our children and grandchildren be burdened by heavy interest payments? What about a balanced budget amendment? What’s so bad about forcing the government to live within its means? The outstanding public debt as of December 2, 2013 is: $ 17,216,466,518, Since the estimated population of the United States is 317,162,020. Each citizen’s share of the debt amounts to $54,282.88!

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Family Budgeting vs. National Budgeting Does this comparison make sense? Source: The Citizen’s Guide to the Federal Budget

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Who Owns the Debt?

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Balancing the Budget In February 2011, The Harris Poll asked a random sample of American adults in how they felt about persistent budget deficits, and what they might do to fix the problem: “Below is a list of different areas of federal government spending. For each, please indicate if you would favor a major cut in spending, a minor cut in spending, no cut at all, or would you increase spending in this area?”

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Balancing the Budget In 1995, the Gallup Organization asked a random sample of American adults in how they felt about persistent budget deficits, and what they might do to fix the problem: “As you know, the president and the Congress will be trying to cut federal programs in order to reduce the budget deficit. For each of the following programs, please tell me whether you think it is more important to reduce the federal budget deficit, or more important to prevent that program from being significantly cut…”

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march /sequest-out Sequest Out Democrats and Republicans prove unable to avoid their self- designed mutual ball punch.

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What is the “Fiscal Cliff”? The fiscal cliff is the combination of large spending cuts and tax increases that are scheduled to be automatically enacted at the start of Bush-era income-tax cuts will expire for tens of millions of Americans, and billions of dollars of spending cuts will take effect because Congress couldn’t reach a deal last year to reduce the deficit by at least $1.2 trillion over 10 years. Democrats want a combination of spending cuts and tax increases for upper- income households. Republicans want to cut spending but don’t want to raise tax rates, though they have signaled they would consider raising revenue through other measures, such as limiting deductions. Both want to avoid the fiscal cliff, because it forces severe cuts, particularly in military spending.

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Is it more important to: “Reduce the federal deficit” “Prevent cuts to the program” Expenditures in FY 1995 % of total budget Funding for the arts6629$11.3 million0.007% Welfare programs in general 6530$112.5 billion7.4% Food stamps6035$26.6 billion1.8% Defense spending5243$271.6 billion17.9% Aid to farmers4352$11.7 billion0.8% Loans to college students 3165$14.02 billion for all higher education 0.9% Medicaid2966$88.44 billion5.8% Grants to cities to put more police on the streets 2868About $1.34 billion0.09% School lunch programs 2869About $526 million0.02% Social Security2077$336.2 billion22.1% Medicare1978$157.3 billion10.4%

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WASHINGTON -- Republican leaders return to the Capitol this week determined to cut both taxes and spending, a combination that is fraying party unity as the GOP prepares for next year's elections. While tax-cut packages in both the House and Senate skew toward investors and other middle- and upper-income taxpayers, the spending cuts fall partly on programs aimed at lower-income Americans, such as student loans, food stamps and Medicaid. The House of Representatives and the Senate Finance Committee postponed action last week when rebellions by GOP moderates left leaders short of votes for two packages. The Senate panel stalled on a bill to cut taxes by almost $70 billion over five years. The House put off action on a package to cut spending in the same period by more than $50 billion. Both chambers must eventually agree on some version of both bills. "You're denying resources to programs that serve the middle class and neediest of the needy on the eve of a projected vote to provide tax benefits and breaks to the most advantaged in our society," said Rep. Sherwood Boehlert, R-N.Y. He was one of the moderate Republicans who pressured leaders to modify the spending cuts. GOP leaders can't afford to lose many of their own, since the issue has energized Democratic opposition. House Minority Leader Nancy Pelosi, D-Calif., said, "They'll take food out of the mouths of children in order to give tax cuts to the wealthiest." Republican leaders are caught between party loyalty to tax cuts and growing pressure to cut spending. During the past four years, Republicans, with limited Democratic support, have been able to enact large tax cuts without making offsetting reductions in spending. Rift appears in GOP over cutting taxes and spending by Sue Kirchhoff and Richard Wolf, USA TODAY

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After Congress' approval of $62 billion for recovery from Hurricane Katrina, GOP conservatives are demanding greater cuts in social programs while refusing to scale back their plans for a fifth round of tax cuts. That has divided the party and invigorated Democratic activists, who are attacking wavering Republicans in their home states and districts. Brad Woodhouse, spokesman for a coalition of liberal interest groups, said Republicans who support cutting anti-poverty programs risk having opponents run damaging TV ads against them featuring the faces of Katrina's overwhelmingly poor victims. "Many of those people were barely surviving before Hurricane Katrina, and the reason they were barely surviving was because they had Medicaid and food stamps," Woodhouse said. Acting House Majority Leader Roy Blunt, R-Mo., called last week's delays a temporary setback. He said Republicans needed time to counter the "so-called facts" being spread by liberal activists in the districts of key moderates. But others said Republicans are in a bind. "This is where they have to make it all add up, and it doesn't," said Robert Bixby of the non-partisan Concord Coalition, which supports deficit reduction. The legislation involved provides a sharp tradeoff between spending and tax cuts. The non-partisan Congressional Budget Office estimates that about 300,000 lower-income people, many of whom work, would lose food stamps under the House bill. As a result, 40,000 children would be cut from the free school lunch program. The House measure would let states impose premiums, restrict benefits and raise co- payments for poor families who receive Medicaid. About 70,000 low-income Americans would lose benefits in 2010 because of the higher premiums, according to the CBO.

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Republicans argue that restraints are reasonable because many of the programs have been growing at double-digit rates. Governors have asked Congress to tighten Medicaid, jointly funded by states and the federal government. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, denied Republicans are taking from the poor to help the rich. The Senate's spending bill would trim spending by $39 billion and avoid some of the House's cuts to anti-poverty programs. Grassley said many of the tax cuts under consideration are popular, including making college tuition deductible, expanding businesses' ability to deduct investments, and applying a short- term fix to shield 14 million taxpayers from the costly alternative minimum tax. Stuart Butler, vice president of domestic and economic policy studies at the conservative Heritage Foundation, said the House spending plan is "lousy politics, and it doesn't have to be done that way." But Butler said there is a basic clash between those who want to keep taxes low and those who want to maintain social spending. Further, there are signs that Republicans are rethinking their focus on tax cuts. Sen. Judd Gregg, R-N.H., has called for tax increases to fund heating assistance for low-income Americans. Ohio Republican Sen. George Voinovich has said more tax cuts are not needed, given the federal budget deficit. Carl Forti, spokesman for the National Republican Congressional Committee, which helps elect and re-elect GOP House members, says the spending cuts will be hard to use against Republicans. "When was the last time that (a budget bill) was ever featured in a TV ad?" Forti said. "I don't believe that there are any political implications to this vote." Democrats disagree. "Even if they prevail in the passage of some form of this legislation, it's not going to sit well with the American people," said Rep. John Spratt, D-S.C.